Altria shares just slipped 10%: explore why

on Jun 22, 2022
  • FDA wants Juul Labs' flavoured e-cigarettes out of the U.S. market.
  • Altria has a 35% stake in the American e-cigarettes manufacturer.
  • Shares of Altria Group Inc slid about 10% on the news this morning.

Altria Group Inc (NYSE: MO) is down 10% this morning on a report that said the Food and Drug Administration wants Juul Labs’ e-cigarettes out of the U.S. market.

Altria Group has a 35% stake in Juul Labs

Altria spent $12.8 billion in 2018 to secure a 35% stake in the vaping company. As of March, however, the fair value of its investment was about $1.60 billion only.

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The write down is primarily related to heightened scrutiny after the U.S. authorities blamed Juul’s nicotine products for an increase in teenage vaping. According to Rae Maile (Panmure Gordon analyst):

The investment in Juul was always a mistake, the company paying top dollar for a business which was already on the wrong side of the regulators.

In April, Altria reported market-beating results for its fiscal first quarter. The stock is down nearly 15% for the year.

Cowen analyst reacts to the WSJ report

Citing anonymous sources, the Wall Street Journal said an order from the U.S. FDA could arrive as early as today. Reacting to the news, Cowen analyst Vivien Azer said:

This clearly comes as a surprise to the market. We would expect that Juul would appeal this decision, and remain on the market through that process, which would likely take a year or more.

Neither FDA nor Altria or Juul has responded with a comment so far. Wall Street currently rates Altria Group Inc at “hold” and sees upside to $56 on average – a close to 40% increase from here.  

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